Baker Hughes Buys Into List of Local Stocks

The May-Investments Index of Western Colorado Stocks increased +2.69 percent in April while the widely followed S&P 500 stock index rose +1.58 percent during the month (total return including dividends). Arch Coal (ACI) was the best performing stock in the index (+18.2 percent) while Wellpoint (WLP), which fell -16.4 percent during the month, was the biggest laggard.
Baker Hughes completed its acquisition of BJ Services and replaces BJS in the index. Baker Hughes has been working to expand its presence in the Middle East and Russia. By adding BJ Service’s pressure pumping products to the Baker Hughes product portfolio, now it can compete more effectively for international contracts that require a more comprehensive range of capabilities. The merger received Department of Justice approval late in the month and closed on April 28.

Arch Coal reported a first quarter earnings miss, but the company raised its 2010 earning guidance based on forecasted improvements in its domestic steam coal markets. Wellpoint shares declined after the health plan company cancelled its proposed massive rate increase in California. When Wellpoint announced the rate increases, some as high as 39 percent, the move almost single-handedly revived the moribund Obamacare legislation. Now we find that the rate increases didn’t stick, after all, but the legislation did.

Year-to-date, the May-Investments Index of Western Colorado Stocks is up +9.3 percent through the end of April while the overall market has gained +7.1 percent over the same time period. The index began tracking the performance of local stocks in December 2006 and is up +0.6 percent since it launched, while the S&P 500 has declined -10.0% during the same period of time. 
 
Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Airgas Buyout Bid Tops the List

The May-Investments Index of Western Colorado Stocks surged +4.13 percent in February while the widely followed S&P 500 stock index rose +3.10 percent during the month (total return including dividends). Airgas, Inc. (ARG) rebounded off a weak month in January to be the best performing stock in the index a month later (+51.8 percent) while StarTek (SRT), which fell -11.8 percent during the month, was the biggest laggard.

Airgas received an unsolicited merger offer from Air Products and Chemicals for $60 cash on February 5th. A merger would create one of the largest industrial gas companies in the market, but management has asked shareholders to vote against the deal so it’s not clear that it will go through.  Airgas stock ended the month trading at a premium to the cash bid offered. The market has concluded either that another company will come in and make a higher bid, or at the very least that Air Products will have to pay a higher price to complete the acquisition.

StarTek. reported a fourth quarter profit versus a year ago, but the stock has fallen sharply since the announcement. Earnings of 6 cents were slightly below analyst estimates of 9 cents, but more importantly was a miss on revenues, which declined slightly from last year’s levels as opposed to going up, as analysts had expected.

Over the past twelve months, the May-Investments Index of Western Colorado Stocks is up +49.9 percent through the end of February while the overall market has gained +53.6 percent over the same time period. The index began tracking the performance of local stocks three years ago and is down -5.09 percent since it launched, while the S&P 500 has declined -16.46% during the same period of time.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Markets Zero in on Profits During January

The May-Investments Index of Western Colorado Stocks slid -0.94 percent in January while the widely followed S&P 500 stock index fell -3.6 percent during the month (total return including dividends). U.S. Bancorp (USB) was the best performing stock in the index (+11.4 percent) while Airgas (ARG), which fell -11.2 percent, was the biggest laggard.

U.S. Bancorp recently reported fourth-quarter profits that were a penny better than expected and nearly double the profits reported a year ago. Revenues were also higher than analysts had anticipated. The Federal Reserve has pushed interest rates down almost to zero in an effort to bail out the banks, who are paying almost nothing for deposits but have been raising the price of loans to borrowers. U.S. Bancorp has benefitted from the Fed’s bailout policies, without having made the mistakes that many of the other big banks were making.

Airgas Inc. reported that third quarter profits dropped 25 percent, revenues fell 13 percent, and the company lowered its estimates for 2010 full year earnings as well. I’m afraid that earnings disappointments won’t stop with Airgas.  In fact, our watchword to investors for the year is, "Be prepared." Be prepared for earnings disappointments in a lot of sectors, because the analysts are expecting corporate profits to be up 25 percent this year and it’s going to be awfully difficult for companies to deliver that sort of profit growth in the current economic environment.

Over the past twelve months, the May-Investments Index of Western Colorado Stocks is up +29.5 percent through the end of January while the overall market has gained +33.1 percent over the same time period. The index began tracking the performance of local stocks three years ago and is down -8.86 percent since it launched, while the S&P 500 has declined -18.97% during the same period of time.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Wellpoint Replaces Bankrupt Mesa Air in Local Stock Index

The May-Investments Index of Western Colorado Stocks remained flat percent in December while the widely followed S&P 500 stock index rose +1.9 percent during the month (total return including dividends). Qwest was the best performing stock in the index (+15.3 percent) while Kroger Corp., which fell -9.7 percent, was the biggest laggard.

Mesa Air Group (MESA) succumbed to economic pressures and declared bankruptcy. In November, United declined to extend a contract in which it had been paying Mesa to operate 26 regional jets under the United Express brand. Doug May, President of May-Investments, noted that “Nasdaq will delist the shares on January 14, but even before this filing it was clear that our index needed to remove this stock from the index.”

Wellpoint Inc. (WLP) will replace MESA in the index, beginning in January of 2010. “Wellpoint is the parent company for Anthem Blue Cross and Blue Shield,” May said, “In Grand Junction, particularly, the fact that we are a regional health center drives a significant portion of our economic activity. In the past, this dependence on the healthcare industry was probably underweighted in the index, so the addition of Wellpoint helps us meet our objective, which is to have a stock index that fairly represents what is going on in our local community.” The composition of the index is rebalanced periodically in order to re-set the index to an equally weighted component structure. As part of this rebalance, most stocks in the index were rebalanced as a result of the changes made to the index in January.

Year-to-date, May-Investments Index of Western Colorado Stocks is up +20.9 percent through the end of the year while the overall market has gained +26.5 percent over the same time period. The index began tracking the performance of local stocks three years ago and is down -7.99 percent since it launched, while the S&P 500 has declined -15.95% during the same period of time.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Energy Fuels Local Stock Rally

The May-Investments Index of Western Colorado Stocks surged higher in September, gaining +6.6 percent as energy exploration and services stocks powered higher. The widely followed S&P 500 stock index rose +3.7 percent during the month (total return including dividends).


Arch Coal (ACI) ended the month at $22.13, up +27.8 percent from a month earlier. Arch Coal was up over 35% two weeks into the quarter, on mixed analyst reports. Doug May, President of May-Investments, noted that “An analyst at Brean Murray initiated the stock with a sell recommendation on September 8, but two days later Mad Money TV show host, James Cramer, said that Congress has bought into the clean coal story in spite of the fact that natural gas is a much better energy alternative.” The entire energy complex was very strong during the month.

Kroger (KR) led a lackluster retail food group lower, falling -4.4 percent during the month of September and was the worst performer in the index. “Kroger cut its forecast for 2009 as the stock market rally has not yet convinced shoppers to loosen up their purse strings,” May said.

Year-to-date, May-Investments Index of Western Colorado Stocks is up +20.6 percent through the end of the third quarter while the overall market has gained +19.3 percent over the same time period. The index focuses on large companies whose operations have a significant impact in the local economy, including major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), StarTek, CRH (United Companies), and the Union Pacific Railroad.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Mesa Air plunge doesn’t deter local market index

The Scout Partners Index of Western Colorado stocks rose +7.29% while the broad market gained +5.13% in April (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Arch Coal(ACI) rose +31.9% in April. The stock is up nearly 28% since the beginning of 2008, while the broad market has fallen -4.8% during the same period of time.

Doug May, President of May-Investments, a Grand Junction-based registered investment advisor, noted that, "coal has been strong lately and Arch Coal was a strong performer all month.” May added the company's April 21 earnings release was reassuring to investors. "Earnings were more than 20% above consensus, revenues beat expectations, and the company is talking about supply tightness in the eastern united states that is resulting in declining stockpiles."

Mesa Airlines (MESA) was the worst performer in the index, falling -71.9% in April. "The stock has all the earmarkings of a sinking ship," May said. "It paid out huge bonuses to management at the end of last year. It lost an $80 million lawsuit with Alaska Airlines, which just settled for 65 cents on the dollar as long as it was paid immediately in cash. They have $100MM of bonds that bondholders could force the carrier to repurchase as soon as June 16, assuming they haven't filed bankruptcy by then, they operate in an industry where it seems that a new carrier is going belly-up each week, and they are looking to raise a fraction of that amount by giving away half the company in a new share offering in a distress sale to new investors, assuming they can find anyone willing to pony up the money."

Mesa has lost almost 80% of its value thus far in 2008. "I'm sure glad that the Board paid up for that bonus money at the end of last year to lock the current team up for the long-term, though in this case it looks like "long-term" might just be a matter of weeks."

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up +7.33% over the past 12 months while the overall market has fallen -4.44% over the same time period. Year-to-date, local stocks are up +3.32% while the broad market is down -4.8%.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

BJ Services Tops Performance Derby

The Scout Partners Index of Western Colorado stocks fell -0.77% while the broad market fell -0.43% in March (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

B.J. Services (BJS) rose +9.9% in March, following a +19.4% increase in February. The stock is up about 18% during the first quarter of 2008, while the broad market has fallen almost 10% during the same period of time.

Doug May, President of May-Investments, a Grand Junction-based registered investment advisor, noted in February that, "natural gas prices have reached their highest prices in 26 months.” May added that prices are nearing $10 per MMbtu and that, "Merrill upgraded the stock on the 17th and a couple smaller firms either upgraded the stock or raised target prices recently."

Qwest Communications (Q) was the worst performer in the index, falling -16.1% in March.

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up +3.5% over the past 12 months while the overall market has fallen -5.1% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Local stocks rise while broad market falls

The Scout Partners Index of Western Colorado stocks rose +1.72% while the broad market fell -3.25% in February (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Natural gas prices rose and many local energy companies were up 10% or more during a month where the broad market indices continued their 2008 declines. B.J. Services (BJS) rose +19.4% in February, but close behind were Arch Coal (ACI), +16.4%, Halliburton (HAL), +15.7%, Encana (ECA), +15.1%, Williams (WMB), +12.7%, and Bill Barrett Resources (BBG), +11.2%. Doug May, President of May-Investments, a Grand Junction-based registered investment advisor, noted that, "natural gas prices have reached their highest prices in 26 months but investor sentiment about the sector remains pretty cautious,” May said. "Gas inventory levels remain under control and the lower drilling rig activity we've had over the last year suggests that inventories will decline from here." Concern about a possible recession is overshadowing the positive industry fundamentals, however, so valuations in the sector remain depressed.

Mesa Air Group (MESA) was the worst performer in the index, falling -31.1% in February. The stock closed the month at $2.42 and has fallen 68% in the last 12 months. Mesa was as high as $12.87 as recently as 2006, recently re-signed several senior executives to long-term contracts to reward them for their service to the struggling carrier.

"High energy prices have hurt Mesa," May observed, "and the company reported a $2.8 million loss mid-month on lower revenues and higher legal expenses. Including losses earned at its Air Midwest subsidiary, the company managed to lose $4.2 million." Mesa Air Group has announced that it is selling the money-losing Air Midwest subsidiary. "Mesa said that it is planning to boost its cash reserves by financing its spare parts inventory," May noticed, "which makes investors feel good until they realize that it's sort of like an alcoholic taking out a home equity loan to put money back into the family bank account, nor does it make me feel better about climbing onto one of their planes which might be needing one of those spare parts to stay right-side up."

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up +6.9%% over the past 12 months while the overall market has returned -3.6% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Rough start to 2008

The Scout Partners Index of Western Colorado stocks fell -4.59% while the broad market fell -6.01% in January (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Energy stocks fell more than the market as falling crude oil prices marked the beginning of the new year. The leader in December was Wells Fargo Bank (WFC), which rose +12.9% during the month to close at $34.08. The bank reported solid revenue growth and no unexpected loan reserves for the most recent quarter, and rallied with the rest of the financial sector when the Federal Reserve dramatically lowered short-term interest rates to 3.0% in the latter part of the month.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "Wells Fargo hasn't strayed into areas of investment banking and deal-making that got Citigroup and some other banks in hot water,” May said. "They warehouse much of their own loan production, too, which kept them focused on loan quality while other financial companies became too preoccupied with the quantity of loans underwritten." Loan losses associated with foreclosures of sub-prime loans have forced several other financial service firms to additional capital to shore up their financial position, but Wells Fargo has thus far avoided those difficulties.

Qwest (Q) was the worst performer in the index for the second month in a row, falling -16.0% in January. The stock closed the month at $7.01. AT&T helped trigger the mid-month sell-off in stocks when the company's CEO cited consumer softness at an investor conference on January 8 that was broadcast over the web. During the month, the telecom sector fell -12%.

"Qwest was hit a bit harder," May observed, "because it is more leveraged and therefore more at risk if we do find ourselves in the midst of a major recession."

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up +4.7%% over the past 12 months while the overall market has returned -2.32% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Local stocks receive year-end energy boost

The Scout Partners Index of Western Colorado stocks rose +1.33% while the broad market fell -0.70% in December (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Energy stocks were mostly positive during the month. The leader in December was Arch Coal (ACI), which rose +18.7% during the month to close at $44.93. The stock is up nearly 50% since the beginning of the year, putting it well ahead of the S&P 500 benchmark index. Bill Barrett and Harsco closed out the year with even strong year-to-date returns, but Arch Coals’ strong showing in the month made it a standout.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "coal prices, like most commodities, are climbing as the value of the dollar falls,” May said. "Simply put, the U.S. dollar doesn’t go as far as it did before. To buy a barrel of oil or a pound of coal, buyers are having to give up more dollars because in the world economy the dollar currency won’t buy what it once did." Rising coal prices mean that those companies with sizable coal reserves are worth more, and stock prices are rising as the market factors that in.

Mesa Air (MESA) was the worst performer in the index for the second month in a row, falling -18.3% in December. The stock is now lost about two-thirds of its value during the year, closing the month at $3.09. The stock stabilized during the month of December, but fell sharply during the last few trading days of the month.

"Some of it may have been tax selling," May observed, "but more of it was the announcement at month-end that the company’s September 30 earnings announcements was delayed by the need to conduct a complete review of certain estimates and reserves that could affect it’s financial results."

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 10.7% for the year while the overall market has returned +5.5% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Falling market sends local index lower

The Scout Partners Index of Western Colorado stocks fell along with the market in November, -3.96% versus a -4.18% monthly decrease for the widely followed broad market S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Helping cushion the fall, Mesa Labs (MLAB), rose 10.5% during the month to close the month at $24.90. The stock is up +31.5% since the beginning of the year, putting it well ahead of the S&P 500 benchmark index.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "Mesa Labs delivered a really solid quarter, with revenue increasing 16% year-over-year and earnings up 40%," May said. "With all of the difficulties that investors are experiencing in the financial sector, a stock with good earnings growth that isn't in any way tied to the sub-prime mortgage sector starts sounding more attractive."

Mesa Air (MESA) was the worst performer in the index, falling -18.7% in November and the stock is now -55.9% for the year, closing the month at $3.78 and traded as low as $3.10 on November 21.

"At the end of October, the company lost a significant court case," May observed, "and started the month of November by terminating their Chief Financial Officer. During the second week, they announced that air traffic was down. Merrill Lynch kicked off the third week of the month by finally recommending that clients sell the stock, now that the stock price was half what it was at the beginning of the year, and the company finished the month by posting a $90 million bond just in case it loses its appeal of that October ruling." On November 20th, the company's Board of Directors announced that they had approved certain ammendments to the employment agreements for several officers. "In Japan, this company's CEO would probably commit suidice," May said, "but in this country its ever vigilent board decided to give the management team a raise and extend their contracts. Investors should keep that in mind next proxy season."

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 9.3% for the year while the overall market has returned +6.2% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Arch Coal leads local index higher

The Scout Partners Index of Western Colorado stocks rose along with the market in October, +4.30% versus a +1.59% monthly increase for the widely followed broad market S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Leading the index higher, rising 21.5% in the month, Arch Coal (ACI) ended the month at $41.00. The stock is up +36.5% since the beginning of the year, putting it well ahead of the S&P 500 benchmark index, though it has been a particularly volatile year for the stock.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "Arch Coal announced a weaker than expected quarter, only 19 cents per share instead of the 27 cents that Wall Street was expecting, but they tempered that news with a positive outlook for the rest of the year and for 2008, and more importantly with the price of crude oil gaining more than 10% on the month, the outlook for pricing in 2008 looks solid, which should lead to upward estimate revisions."

Qwest (Q) was the worst performer in the index, falling -21.6% in October and the stock is now -14.4% for the year, closing the month at $7.16. The stock is now down more than 30% from its recent high of $10.45 last May.

"It looks like Richard Notebaert got out just in time," May observed, refering to Qwest's former CEO who retired in mid-August. "Revenues were lower, they had to cut the earnings forecast, and any talk of restoring some sort of dividend payout to investors has been set aside until they can get a handle on things," May said.

Scout Partners equal weighted index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in Industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 13.9% for the year while the overall market has returned +10.9% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Mesa Labs replaces LaFarge in Index

The Scout Partners Index of Western Colorado Stocks rose along with the market in September, +3.63% versus a +3.74% monthly increase for the widely followed S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.


Leading the index higher, rising 14.4% in the month, Arch Coal (ACI) ended the month at $33.74. The stock is up +12.4% since the beginning of the year, putting it slightly ahead of the S&P 500 benchmark index, though it has been a particularly volatile year for the stock. Mesa Air Group (MESA) was again the worst performer in the index, falling -21.3% in September and the stock is now down -48.2% for the year.

“Mesa is experiencing both internal and external problems,” observed Doug May, a Grand Junction-based registered investment advisor, “there are increasing signs that we're heading into a recession, or at least very close to one, and fuel prices are rising, which will boost Mesa's cost structure. In addition to that," May added, "they are in the middle of a lawsuit as a result of a Hawaiian Airlines lawsuit which alleges that Mesa conducted some due diligence on Hawaiian Air in 2006, and then turned around and used that confidential information to go start up their own interisland carrier." Mesa Air Group received an unfavorable ruling in September as the judge determined that evidence that Mesa intentionally destroyed can be used in trial.

Mesa Labs (MLAB) replaced LaFarge in the index. LaFarge applied for a delisting from the New York Stock Exchange but retains its Euronext listing, where 99% of its stock trading takes place. Lakewood, Colorado-based Mesa Labs manufactures and markets electronic instruments and systems for industrial applications and hemodialysis therapy. "Adding Mesa Labs to the index helps bolster representation of the health care sector in the index," May notes, "which is an important contributor to the local economy and one that was under-represented in the index."

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up +9.16% for the year while the overall market has returned +9.13% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

Mesa Air drags down local stocks

The Scout Partners Index of Western Colorado Stocks fell in August, losing -0.73% versus a +1.5% monthly increase for the widely followed S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Leading the index higher, rising 8.2% in the month, Wells Fargo (WFC) ended the month at $36.54. Large diversified financial service companies led the month-end market recovery.

“With all the independent mortgage companies going bankrupt, many investors are looking for the survivors like Wells Fargo to benefit from picking up market share,” said Doug May, President of Scout Partners, LLC, “What makes no sense to me, however, is that we are seeing real problems - nationally - in the real estate market, and I don't see why the big banks like Wells Fargo and BofA are going to be immune to these problems. I think that all the big banks are going to have to increase loan loss reserves before this thing is over, and that is likely to hurt companies like Wells Fargo going forward.” Wells Fargo is up +2.8% since the beginning of the year, which lags the S&P 500 benchmark index.

Mesa Air Group (MESA) was the worst performer in the index, falling -15.2% in August and is down -34.2% for the year.

“Mesa reported a decrease in both available seat miles and revenue passenger miles,” May said, “though passenger enplanements increased year-over-year.” MarketWatch reported mid-month that all U.S. airline shares were being hurt by rising oil prices and that investors had concerns about how deteriorating credit market conditions would impact this traditionally heavily leveraged sector.

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up +5.3% for the year while the overall market has returned +5.2% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.

July roughs up local company index

The Scout Partners Index of Western Colorado Stocks fell in July, losing 3.9% versus a 2.9% monthly decline for the widely followed S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Leading the index higher, rising 4.3% in the month, Halliburton Co. (HAL) ended the month at $35.96. The company announced strong profits, with operating earnings growing 28% and reported earnings almost tripling over year-ago levels due to one-time gains reported as a consequence of the sale of its KBR unit.

“Oil prices continued higher throughout the month,” said Doug May, President of Scout Partners, LLC, “which encourages drilling activity, which is benefiting many companies in the energy sector. After announcing strong earnings, the Jeffries analyst raised his target price and had positive things to say about Halliburton's presence in the Eastern Hemisphere and Latin American operations.” Halliburton is up nearly 16% since the beginning of the year.

Arch Coal (ACI) was again the worst performer in the index, falling -14.1% in July after an equally dismal -13.8% decline during the month of June. The stock, which was up almost 40% at the end of May, has given up all those gains and now sits $0.13 below where it began the year.

“Utility companies have been stockpiling coal, so on the 23rd of July the company acknowledged that production levels would come down and pricing is still soft,” May said. “They cut the earnings guidance to $1.00 to $1.30 for the year, which is well below the Street consensus of $1.53 per share.”

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 6.1% for the year while the overall market has returned +3.9% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments Main Page

Exxon Mobil added to Index

The Scout Partners Index of Western Colorado Stocks fell in June, losing 1.2% versus a 1.7% monthly decline for the widely followed S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), StarTek, CRH (United Companies), and the Union Pacific Railroad. During the month, Exxon Mobil (XOM) was added to the index to replace Kinder Morgan following a management led buyout which took the company private and resulted in it being de-listed from the stock exchange.

Leading the index higher, rising 12.3% in the month, Airgas (ARG) ended the month at $47.90. The company pre-announced stronger than expected same store sales and raised its earnings estimates. “Management says that expected earnings from operations should be in the range of $0.61 to $0.63,” said Doug May, President of Scout Partners, LLC, “which is about 17% higher than the old estimates and the Street earnings estimates for the company. The next day, all the analysts raised their estimates and a couple of them raised their target price as well.” Airgas is up more than 18% since the beginning of the year. Arch Coal (ACI) was the worst performer in the index, falling -13.8% during the month of June, though the stock had spiked higher in May and is still +16.2% since the beginning of the year. “Utility companies have been stockpiling coal, so there are some concerns about the earnings impact of that going forward,” May said. “It also didn’t help that Goldman Sachs downgrade Arch Coal to a sell on June 18th. Wall Street almost never issues a ‘sell’ rating, so Goldman’s call really caught investors’ attention.”

The addition of Exxon Mobil helps maintain the index’s heavy weighting toward industrial material sector stocks, which now represent 21% of the index, which reflects the considerable impact of the energy sector on the local economy. Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 10.4% for the year while the overall market has returned +7.0% over the same time period.


Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments Main Page

Encana Leads Local Stocks Higher

The Scout Partners Index of Western Colorado Stocks rose in May, gaining 4.8% versus a 3.5% monthly gain for the widely followed S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), StarTek, CRH (United Companies), and the Union Pacific Railroad. Though Encana led the energy sector higher, Arch Coal, Halliburton, Williams Companies, and Royal Dutch Shell all saw their stock prices beat the market during the month of May.


Rising 17.0% in the month, Encana (ECA) ended the month at $61.40 and rose to above $63 about 10 days before month-end, the first business day after natural gas prices peaked for the month at $7.88/MMbtu. “In addition to being a great company in a rising sector,” Doug May, President of Scout Partners, LLC observed, “Southeastern Asset Management’s Mason Hawkins, manager of the Longleaf Partners Fund, disclosed that he had started adding Encana shares to his portfolios. He runs a concentrated portfolio and a lot of people watch what he’s doing, so that helped the stock.” A few days later, an analyst from Citibank’s Smith Barney brokerage unit upgraded Encana from a “sell” recommendation to a “hold.” Encana is up 35% since the beginning of the year.

Safeway Stores (SWY) was the worst performer in the index, returning -4.99% during the month of May in spite of comments at the end of April that earnings would be on the upper end of previous guidance, and despite efforts by the company to boost the stock price by raising the dividend 20% to 6.9 cents per share in an attempt to make the stock more attractive to income oriented investors. “Its contract negotiation time,” May said. “Wall Street is worried that management will have to give away the store to avoid another strike like they had in 2004.” Some 65,000 members of the United Food and Commercial Workers union (UFCW) have been negotiating since early March. The companies are negotiating an extension of the 2004 contract which was signed after a 141-day-long strike, the longest supermarket strike in history. The 2004 agreement had left some workers feeling betrayed by the UFCW negotiators who were representing them.

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in

Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 11.7% for the year while the overall market has returned +8.8% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments Main Page

Local Stocks Lag in a Strong Month for the Market

The Scout Partners Index of Western Colorado Stocks rose in April, gaining 3.4% versus a 4.4% monthly gain for the widely followed S&P 500 stock index (total return including dividends). The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), StarTek, CRH (United Companies), and the Union Pacific Railroad. Though the energy sector had a strong month overall, local energy service stocks generally lagged the market which contributed to the overall index underperforming the broad market.


Rising 17.5% in the month, Arch Coal (ACI) ended the month at $36.07 and was the strongest performer among local stocks. “Arch Coal raised its dividend and announced earnings that beat Street expectations,” said Doug May, President of Scout Partners, LLC. “but most of the stock’s run-up was early in the month, ahead of the announcement,” May said. May attributed the strong stock price to more talk about a new coal-to-liquids conversion process where the company is supplying coal to Houston-based DKRW. “DKRW just signed a contract to sell the synthetic gas to Sinclair Oil where it is used to produce ultra-low sulfur diesel fuel,” May observed. According to company officials, the process is economical as long as the price of oil remains above $40 per barrel. In mid-April, when the stock was running up, oil prices spiked up to $66 and closed the month at $65.71. Earlier in the month, the CEO of Arch Coal hinted that his company might be looking to acquire other coal mining assets after a judge revoked four permits allowing Massey Energy to mine coal in Central Appalachia, an obstacle that could make mining more difficult, raise coal prices, and boost the value of today’s reserves.

Mesa Air Group (MESA) was the worst performer in the index, returning -10.36% during the month of April including a 1.89% decline during Monday’s market decline. So far in 2007, the stock has declined 20%. “The analysts just hate the stock,” May said. “The Prudential analyst cut his target price from $16 to $9, and after the stock declines from to $8 a Credit Lyonnais analyst downgraded the stock from Add to Neutral and cuts the target price even further, to $7.20.” Six months ago, Mesa Air’s estimated 2007 earnings were $1.24 but estimates have since fallen to less than $1.00 per share.

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions inWestern Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 6.6% for the year while the overall market has returned +5.1% over the same time period.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investment Main Page

Local Stocks Nudged Lower in March

The Scout Partners Index of Western Colorado Stocks fell in January, returning -0.30% versus a much sharper -2.2% decline for the widely followed S&P 500 stock index. The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), StarTek, CRH (United Companies), and the Union Pacific Railroad. The performance of Denver-based telecommunications giant, Qwest, helped stabilize the February index performance.

Rising 9% in the month, Qwest (Q) ended the month at $8.88. “Qwest was awarded some fairly minor business contracts during the month and announced a small reduction in staff mid-month, about the time that the stock took off,” said Doug May, President of Scout Partners, LLC. “Qwest also received favorable mention by “Mad Money” showman and former hedge fund manager James Cramer after Wall Street investment firm, CIBC, upgraded the stock on February 12th,” May said. Later in the month, the Federal Communications Commission moved to eased price controls on Qwest’s long-distance services. More recently, on the last day of the month Qwest announced that its CFO, Oren Shaffer, will retire effective April 1.

Choice Hotels (CHH) was the index laggard, returning -11.4% during the month of February. Choice Hotels operates as a hotel franchisor with lodging properties under the Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econolodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, Cambria Suites, and Flag Hotels brand names. May noted that “the company announced in January that the CEO was leaving, but in February they announced a special charge to earnings of 3 cents per share to buy a really nice gold watch for the departing CEO,” and a number of Wall Street research firms cut their ratings on the company subsequent to the disappointing earnings guidance.

 

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio. Local stocks are up 0.57% for the year while the overall market has returned -0.47% over the same time period.

 

Go to Investments main page.

Hard Assets

Commodity investments can be hard assets to figure out. The value of the dollar impacts their price. Oil, for example, is quoted (priced) in dollars. If the value of the dollar declines relative to other currencies, but world demand remains constant, then the price of oil will go up – all other things being equal. So a weak dollar stokes energy industry profits. On the other hand, energy is a key input for industrial commodities, like aluminum. As energy prices rise, so do manufacturing costs; profit margins in the aluminum industry can get squeezed.

The Scout Partners (now May-Investments)investment process often looks at commodity investments as an alternative to traditional stocks. In 2001-2002, while the U.S. stock market was losing 33% of its value, commodity stocks were off only modestly and managed futures portfolios were typically appreciating. Investors who employed a flexible asset allocation approach could have side-stepped parts of the bear market and employed their capital much more effectively by considering a wider range of asset classes.


The Scout Partners' ETF model follows two commodity-based ETFs at the moment, though many more exciting options are coming to market as the ETF industry matures. The iShares Natural Resources Index Fund (IGE) tracks stocks represented in the Goldman Sachs Natural Resources Index, including companies in extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and plantation owners. We also use the State Street Materials SPDR (XLB), to represent the domestic basic materials industry – as part of the U.S. stock market. However, the natural resources index (IGE) is more energy intensive than we’d prefer. There’s too much overlap between IGE and the domestic energy portfolio (XLE).

In time, we would expect to find a commodity-based ETF that is more broadly based with less energy exposure and a lower correlation with the U.S. stock market.

The innovative ETFs coming to market will provide us with a better option, but next month we’ll take a look at why investors need to look closely before adding just any ETF to their portfolio.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.